‘Self-build cohousing is all about people, land and money’ was the topic of our July 2015 blog. We told the first part of our story, which concluded with us investing our own money to buy a site. It was not a leap in the dark but a carefully judged move.

Two years on, it is time to tell the second part of the story: we have more members, and the Cannock Mill site is actively being developed; we have some £2.5 million at the bank and a signed loan facility agreement with the Homes & Communities Agency (HCA) to provide sufficient funds to complete our development.

Work on Cannock Mill itself is under way

We have come a long way, physically and emotionally and the end of our self-build is in sight. Indeed, the homes have a number, a street name and a postcode – they are 1 to 23 Cannock Mill Rise, Colchester, CO2 8YY. This means that for those who join us now (we still have a couple of homes to fill) the project is (almost) ‘as safe as houses’ and no longer a journey for risk takers.

Getting to this stage has taken a lot of effort from Millers in every aspect of our work but in this blog we want to look in detail at the finance side. We hope this will be of interest, in particular, to cohousing groups setting out on their journey. We say ‘of interest’ rather than ‘encourage’ because it is easy to get discouraged by the difficulties involved in putting together the necessary finance.

CMCC has been very fortunate in being able to draw on the professional skills of its membership, including housing finance and accountancy. The alternative, which involves buying in that expertise, can contribute greatly to the cost of a project (especially at the start) and be a challenge to the cohesiveness of the group, as it has to rely on external professions to advise on the difficult decisions.

The only professional area where CMCC has spent significant fees is on legal matters and we have employed specialists, including Wrigleys (well known in cohousing circles). Of course, we also have Anne Thorne as a member, Anne is our scheme architect and we pay her firm the scale rates for their work.

The nature of a not-for-profit cohousing development is that the total amounts paid for the homes eventually purchased by members is equal to all the development costs (including interest on finance). This is an incentive to all of us to keep costs down. The most important elements of cost control are keeping to standardised designs (no bespoke follies) and reducing external borrowing through introducing personal funds. The other implication is that you don’t know the cost of the homes until the end of the project – but that is another story.

The first finance hurdle (as described in the 2015 blog) was putting together enough money from members to buy a site. This was done in stages: in February 2013 those willing to commit to going forward with Cannock Mill paid £10,000 each, a second £10,000 followed before, in July 2014, the then members collectively contributed a further £1 million.

We were already talking to banks about ways to bridge the inevitable funding gap as the ability of most members to pay for their cohousing home depended on selling an existing home. We knew that we had to have the finance in place so that we could commit to what would be a £multi-million building contract.

Jane and Anne with HCA staff vising the development

Lenders need to get their money back and receive an adequate rate of return on that money. Low-risk borrowers can borrow at low interest rates; high-risk borrowers pay higher rates or don’t get a loan at all.

External lenders confirmed to us that they are not impressed by cohousing groups with just big ideas. They see a self-build company with no track record. They don’t want to touch that sort of risk even if they have a boat house full of barge poles. So what did CMCC do to successfully attract funding?

There are three areas where CMCC was well prepared: we had a valuable site with planning permission, we had (and have) substantial funding commitments from members (we are over 50% self-funded) and we looked like serious business people (and indeed we are). We were able to impress in meetings through realistic business plans, cash flow projections, risk registers and impressive Board CVs. We even continue to run with two different types of CV: the external ‘scary’ and the ‘friendly’ – the latter are mainly for the benefit of prospective members.

As an external loan was negotiated, members provided further funds to both impress potential lenders with our financial commitment (and reduce the lender’s risk) and limit the external borrowing and hence interest payments which otherwise add to the total cost. Sadly, we had to abandon our plans to include homes for rent in the scheme.

In parallel with talking to other finance providers, we spotted and applied for the HCA Builders Finance Fund in May/June 2014 (and a related infrastructure fund – which eventually we did not take forwards). On 8 September 2014 we were the only cohousing company (and the only developer in Colchester) to be accepted by HCA for the next stage (due diligence).

In between that acceptance and the final signatures on legal agreements (2 May 2017) we (and HCA) had to work very hard on setting everything up. Because HCA wanted a charge over our assets as security, and because the HCA maximum loan would cover our needs, it became easier to concentrate on just one external source of finance. The negotiations, preparation and completion of myriad legal documents and matching finance agreements with our members took place at the same time as we were achieving the planning permission we wanted for cohousing, doing preliminary works on site and appointing a developer for the main building work. Add in the implementation of new finance software, the continued work on communications necessary to recruit more members and the myriad day-to-day matters of building the group’s cohesiveness and you can see that for many of us, the work has been almost a full-time job.

Self-build cohousing is all about people, land and money and, as far as finance is concerned, we have got that somewhere near right. That cohousing clock is about to chime and we are all very excited by the prospect.